THE EXCHANGE. Crouching tiger, hidden elephant

Since 1991, economic reforms analysts have dubbed India an elephant economy. Like the elephant it is slow, they say; but when it moves the world must take notice.

Every now and then Indians get impatient and envy the ‘tiger’ economies of Southeast Asia or the ‘dragon’ of Chinese growth, which can sprint faster. But for many reasons, including population and the weight of democracy, India cannot imitate these examples. As The Economist wrote some years ago, “India’s emergence will continue; it will not come as quickly as Indians want but it will be relentless (though) sometimes exhilarating and often frustrating.”

The tiger has powers of tenacity and discipline; it knows what’s important and stays focused. With industrious energy it does not let a day go by without surveying what is important and making sure that all is well. Elephants symbolise strength, wisdom and purpose.

To effect lasting reduction in poverty India needs to maintain average economic growth of 8 per cent or more. The enormity of our ongoing agenda will totally test the attributes of the elephant in us.

It was a pleasure to hear Prime Minister Narendra Modi at his eloquent best last week, both in Parliament addressing political issues, and at the HT Leadership Summit speaking on India as a future bright spot. Certainly there is merit in his argument that we must evaluate the emerging style of reforms differently from what we have been used to, particularly as they are yielding positive economic and operational outcomes.

There is also great appeal in the assertion that we must assess where we are in relation both to the weak global economic situation and to our own position a few years ago. It is possible to keep analysing or evaluating in general terms, so I venture to make a few recommendations.

For starters, I believe that the forthcoming Budget, now less than three months away, needs to be somewhat creative but significantly bolder than several Budgets of the past.

A first thought is to look at our banking sector aggressively for the future, rather than mostly repairing the past. This takes us well beyond inherited pain points like NPAs and practices, rules or bankruptcy laws to help recovery. Without the support of banks, future investments will suffer.

Ficci suggested in 2014 that banks could need capital of ₹5 lakh crore over 4-5 years. The prevailing policy of a minimum 52 per cent government shareholding in banks is not likely to be conducive to raising such capital through fresh equity-type instruments.

It makes sense to re-examine possibilities of bringing government holding down to 26 per cent, with a golden share mechanism to protect its strategic control. The enhanced networth will be a great booster to both bank liquidity and their market rating; more lendable funds allow lending rate reductions through lower spreads on larger volumes.

Interest rates really go down only in small measure compared to global competitiveness needs, since RBI policies tie reductions closely to inflation and similar macro-indicators. To bring deeper reduction to lending rates it is essential to review and lower deposit rates; to the extent that some schemes or sections need to be insulated from such rate cuts they could be compensated through direct transfer mechanisms (if relevant, from central budgetary allocations too).

Second, the general brouhaha over fiscal deficit in past years had as much to do with the quality and composition of spending and revenues, as with the proportion to GDP. The Centre has now demonstrated discipline and control over all these factors. It would do well to leverage a disciplined track record to redirect spending/additional revenues (minus adventurism or raising rates) by anywhere in the 0.5 per cent to 0.75 per cent GDP range for a period of, say, two years, and allocate these to increased capital investment.

Effective targeted spend on roads, rural construction and social infrastructure, and also improving agricultural support systems (irrigation, warehousing and so on) generate multiplier effects, including increased base-level jobs and rural incomes.

This will also boost sub-optimal rural markets.

Third, a comprehensive strategy must be formulated to induce the real estate sector back into action. Allowing FDI is a welcome step; however, investment will not flow in just to bail out the sector but only when there is evident revitalisation. One must examine the revival of this sector holistically: in terms of releasing blocked finances, creating jobs if new constructions begin, and — most important — the impetus that consumer goods markets will receive because a new dwelling spurs demand across the whole range of durables.

As an aside, a long-term strategy is overdue in terms of “cleaning up” the real estate and property sectors from the evils of the parallel economy.

As often articulated, issues germinate from impractical rules or revenue considerations and not due to any inherent wants of buyers and sellers. If the Centre is able to quickly create a level playing field to address this issue permanently, it will be a huge boon with maximum ease flowing to average citizens.

Fourth, this is the relevant time to sincerely address the impact of manufactured imports on our economy. The idea is not to be unduly protectionist but there is a need to be real.

The conversion of all the well-intended pronouncements on inverted duty structures to real outcomes can be an essential deliverable; for this, the authorities must abandon the role of an “argumentative Indian” and replace it with determined top-down action.

Even though they advocate and pressurise for open trade, when it boils down to protecting their own, many advanced economies find innovative yet nontariff-based solutions without violating international undertakings.

It is crucial that manufacturers facing present or imminent pain are equitably safeguarded, without which aggregate manufacturing growth faces dim prospects and the real benefits of Indian growth move abroad.

Now is the appropriate time to make the most of the tenacity and speed of our crouching tiger to effectively liberate the strength of the elephant.

The clock is ticking; the Indian elephant cannot remotely afford to slip on delivery of the development agenda.

This column explores ideas and opinions on Indian enterprise and economy. The writer is an entrepreneur and former president of Ficci. The views are personal